1. Santiagos Salsa is in the process of preparing a production cost budget for May. Actual costs in April were:

Santiagos Salsa

Production Costs

April 2017

Production 25,000 Jars of Salsa

Ingredients Cost (variable) 20,000

Labor cost (variable) 12,000

Rent (fixed) 5,000

Depreciation (fixed) 6,000

Other (fixed) 1,000

Total 44,000

1. Using this information, prepare a budget for May. Assume that production will increase to 30,000 jars of salsa, reflecting an anticipated sales increase related to a new marketing campaign.
2. Does the budget suggest that additional workers are needed? Suppose the wage rate is $20 per hour. How many additional labor hours are needed in May? What would happen if management did not anticipate the need for additional labor in May?
3. Calculate the actual cost per unit in April and the budget cost per unit in May. Explain why the cost per unit is expected to decrease.